I'm an associate editor at Forbes, part of the team responsible for our signature issues: The Forbes 400, Global Billionaires and America's Richest Families. As a writer, I cover these wealthy business builders as well as other entrepreneurs. Before Forbes, I also reported on entrepreneurs for Inc. magazine, and attended Syracuse University's S.I. Newhouse School of Public Communications.

The Argument Against Fiscal Cliff Austerity: Just Look At Britain's Mess

This is what millions of mothers say to their small children for them to down that spoon full of cough syrup. What doctors tell obese patients to talk them into exercise and more broccoli. And it’s the line that many Republicans and conservatives right now are trying to use—to convince us that austerity is the key to solving the fiscal cliff and America’s broader problems, too.

The line works for Mom, but it shouldn’t for Congress. It hasn’t in Britain.

For a clear-headed explanation of why massive spending cuts would likely injure the U.S., not fix it, look no further than Adam Davidson’s New York Times Magazine piece on Adam Posen, a 40-something who, until very recently, was a key British government economist (and the only American to serve in that capacity). Posen would regularly speak out against the U.K.’s massive austerity program—set to last until at least 2018 if Prime Minister David Cameron keeps his job—and the damage it has wrought on the economy.

Brits have something much like our Federal Open Market Committee. It’s the Monetary Policy Committee. Posen served on that nine-member body until earlier this year. Frequently, in his tenure there votes come back as 9-1—Posen as the lone disenter. He was no fan of Cameron axing the government’s budget.

What has British achieved through its austerity? Since Cameron took office in spring 2010, unemployment hasn’t budged much past 7.9%. Consumer confidence declined further. And gross domestic product, the sum of all goods and services, is below the level when Cameron assumed power.

A quite damning case against austerity, you might reckon. And you might think the same thing would happen here in America if we decided to opt for that sort of thing. Because, if you want people to keep buying anything more than basic everyday necessities at Wal-Mart, and want them buying tech gadgets from Apple and Microsoft, and shopping at Kroger‘s and Whole Foods, cutting a much-relied-on lifeline—government spending and assistance—makes little sense. It’s less about whether you like that the government gives hand outs and more about how great the damage would be if that stopped.

If it did, it would sap demand. That’s what Posen found in the U.K. He diagnosed Britain’s ailment as a lack of demand, not a supply problem as British conservatives had argued: Britain, they said, was simply fundamentally less capable. It’s important to understand the contrast between these opposing mindsets:

It was a subtly (but crucially) different way of looking at the problem: the country was not truly less capable. The problem was not one of supply, Posen suggested, but rather of demand. Workers were not less productive than they used to be. They merely needed some help from the government and the central bank—rather than budget cuts—to close the output gap.

America faces a similar demand problem. In the last month alone, consumer sentiment, by at least one measure, experienced the greatest monthly plunge since the height of the financial crisis. Consumer spending, the key driver of the U.S. economy, this year had outpaced business spending. (Corporate America seemed more finely attuned to the eventual showdown in Washington, D.C. By some estimates, some half a trillion in business cash is on the sidelines.) Consumers are now flagging, too.

Now, before you dismiss Posen and his demand-side solution to our problems, understand something. He is not some silly crackpot. He is a highly intelligent, roundish bald man—a Harvard-educated economist whose analysis of Japan helped that country end its Lost Decade in the early 2000s. There, he found that the Japanese central bank needed to print more money, and that the government needed to embrace a spendthrift nature. It worked.

The Times Magazine writer who profiled him, Davidson, minces no words about whether Posen’s Keynesian-driven theorems can find a place in America: “Doing neither stimulus nor austerity—which is basically what’s happening in the United States—isn’t working, either. So, [Posen] says, let’s try stimulus, even if we don’t know for sure it’ll do the job.”

What Posen offers is a different prescription for achieving better health. One that won’t sting as much.

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I do not appreciate the jab–nor is any of that tolerated in this forum. Please keep all comments civil.

Back to Posen: Your comparison seems unfair. His policies did work. You can see that it in the change in the Nikkei 225 between that period I mentioned earlier. If Posen’s policies had done nothing, and had not boosted the economy, then I would concede your point. But simply drawing a straight from Jan. 1984 to today, ignoring all that happened in those three decades, is disingenuous.

A second comment. As I’ve read through the other comments, I’m impressed that there are a lot of folks who have given up trying to make a national economy work like the local economy does for them. They just don’t comprehend that the country doesn’t borrow money like they do. Austerity destroys economies.

Watch Greece, Spain and Italy. Check out the south American countries who have cratered their economies trying austerity. We’ve been fortunate we’ve never really tried it, although we’ve had no lack of people who want to. We need to drop this nonsense of cutting spending and focus efforts on recovering the housing market.

The issues regarding the banks lending money are of no consequence. There is no lack of money. Banks have far more than they can lend.

The austerity argument, taking to the logical end, would indicate you can never cut spending. If that’s the case print all the money you want and make everyone a pretend millionaire. In fact, that’s precisely what’s happening.

Well, all due respect, Eli, but I haven’t been seeing business start runaway job creation during the period of “austerity” that the majority of Americans have been LIVING for the past few years. It’s been rather confuing to see EXTREMELY generous bonuses gratuitously gifted to a number of top level execs throughout the corporate world along with businesss-as-usual Congressional increases while these samer illustrious “fiscally conservative elected representatives” have used everywhine and threat in the book to try (and, fortunately, fail) to curtail unemployment benefit extensions, at ;least up until now. Program cutbacks we’ve had aplenty, but common-sense adjustments like mandatory negotiations for Medicare durable goods supplier contracts, for example, have been tippy-toed back under the rug, lest those incredible price-gouging businesses be “adversely affected” by the same economy that has devastated all the rest of us.

I’m completely in favor of a freeze on Congressional raises, hirings, office remodelings, a cutback in per diems, eliminating flying first class and some serious limiting of pork-stuffed legislation for our “let them eat cake” bunch in Congress to get their attention. We need a “citizen’s Congress” paid a basic “average American wage” along with volunteers, ALSO elected by the people to slap some sense into Congress. Cutbacks won’t work….SERIOUS stimulus and an extension of the payroll tax reduction is the ONLY thing that can work at this point.